Introducing FATCA – What Does It Mean In Your Life?

John Richardson, FATCA,

Be patient. Settle in for the ride. Historians will write much about the role FATCA played in eroding America’s role as a world power.

There is no legislative record which explains the purpose of FATCA. FATCA appeared as an “offset provision” in the HIRE Act which was signed into law by President Obama in March of 2010. Some claim that FATCA was for the purpose of preventing Homeland Americans from “stashing their wealth” in unreported “foreign bank accounts” outside the United States.

Whatever its original purpose (if there every really was one), the truth is that FATCA has had an extremely detrimental effect on:

American citizens (with only American citizenship) – frequently referred to as “American Expatriates” – who chose to live outside the United States in an FBAR and FATCA world (See this 192 page book of comments from Americans abroad on how FATCA and citizenship-taxation)

Dual citizens who live in other nations, who (although aware of their U.S. citizenship) regard themselves as primarily citizens and residents of those other nations. (They are technically American citizens only because they were born in the United States or because their parent was an American citizen.) They are frequently referred to as “Accidental Americans.”

People who were “Born In The USA”, who left the USA at a young age and had NO IDEA that they were considered to be U.S. citizens (Ha, Ha, “Born In The USA” means U.S. tax returns for you AND NO bank account for you!) In 2011 the IRS “graciously” allowed those who who were NOT aware that they were U.S. citizens to pay ONLY 5% of their “net worth” as a penalty under the “Offshore Voluntary Disclosure Program”

Green Card Holders living in the USA who have bank accounts in their country of citizenship and previous residence (having trouble keeping those bank accounts)

Non-U.S. citizens who are the owners of non-U.S. “entities“ who are forced to reveal whether their entities have “U.S. Person” ownership by completing intrusive IRS forms

The ability of Americans abroad to retain their U.S. citizenship. Many feel forced to renounce U.S. citizenship in order to live a life that allows them necessary retirement planning opportunities. See for example: “When it’s all said and done, All Roads Lead To Renunciation”

Banks (large and small) located outside the United States

The economies of other nations. FATCA is the enforcement mechanism for U.S. “place of birth taxation” – AKA “citizenship-based taxation” – which has the effect of transferring capital from other nations to the U.S. Treasury. FATCA operates to expand the U.S. tax base into other nations.

The sovereignty of other nations including overriding the constitutions of those other nations

Privacy rights (if you believe that privacy rights are worth defending).

The presumption of innocence, if you believe that people should be presumed innocent. (FATCA has established a Global “Hunt and Frisk” movement.)

Given these facts, it is clear that FATCA has a definite effect and a current purpose that was not likely the original purpose of FATCA. Regardless of past purpose or current purpose, it is clear that FATCA is considered to be an important component of the U.S. arsenal of weapons (FATCA, FBAR, PFIC, CFC, Foreign trust rules) which are designed to attack “all things foreign” and “all things offshore”. As suggested by Professor Denis Kleinfeld:

The threat of FATCA enforcement has impacted every jurisdiction in the world and the global financial industry is quaking with fear. The US Justice Department has taken the position that the entire non-US financial industry is potentially part of a continuing criminal conspiracy with some US individuals and multi-national companies to evade US income tax. The Justice Department has unilaterally forged ahead to obtain indictments and convictions over prominent foreign banks, bankers, and some of their US customers. The United States justification for claiming the moral high ground is that it is merely seeking to have all US taxpayers pay tax as required under US law.

In March of 2017, Professor Shu Yei Oei released an insightful paper titled: “Offshore Tax Enforcement Dragnet.” This paper describes the interaction between FATCA, FBAR, OVDP and the alphabet soup of IRS penalty-laden reporting requirements.

This is part of a longer blog post by John Richardson about Repealing FATCA. In the next few days, we will be posting pieces of the rest of the article.

The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a Toronto based lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.


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4 comments on “Introducing FATCA – What Does It Mean In Your Life?

  • If I may, there really should be another category, namely “accidental tax citizen” for those who left the US aware of their US citizenship but unaware of their responsibilities to file, pay and report under the US’ unique Taxation Based Citizenship.

    Any claims by homelanders that “it’s your responsibility to know” are easily rebutted by the fact that the IRS has a Streamlined Amnesty Programm to accommodate such citizens who were unaware of their tax filing obligations.

    • Suzanne:

      You are absolutely correct. The vast majority of U.S. citizens moving from the USA had absolutely no idea that the USA does NOT have “residence based taxation”, but rather has “taxation-based citizenship”. These are your “accidental tax citizens”.

      But since 2004, the USA has deliberately and intentionally created, what I would call, “The Tax Citizen”. Since, 2004 one can cease to be a U.S. citizen under the immigration/nationality laws, but still be treated as a “U.S. citizen” (with all the horror that implies) under the Internal Revenue Code.

      Therefore, since, 2004 all U.S. citizens have become “dual citizens”!

  • John, I called you several weeks back and I suggested to you that in connection with your article dealing with I believe, expatriation, you include some additional comments as to the Code Section 121 principal residence exclusion. You then asked for more information about me and my firm and you stated that you oftentimes need help or a US referral source.

    You then gave me your e-mail address so I could send you some data about me and my firm but when I used that e-mail address, my e-mail came back undeliverable. It’s possible I wrote in down incorrectly as I was playing with my new granddaughter when we spoke so if possible, please send me your current e-mail address and I will follow up. Thank you and nice meeting you over the phone. Michael Rosenberg

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